In an interview with ETMarkets, Mehtasaid: “Pullback trade is expected in the baking stocks in the range of 7-8% in & in medium-term..” Edited excerpts:
A roller-coaster week for investors but bulls managed to gain the upper hand. Benchmark indices closed with handsome gains – so what led the price action on D-Street?
Though the Nifty is still stuck within the broader trading range of 15,700-16,400, it staged a sharp recovery off the day’s low during the week, showing signs of strength at lower levels as it protected the previous week’s low.
This week’s up move was led by banks and financials. Our customised top 10 Nifty indexes has again picked up momentum on the upside after few sessions of consolidation, implying strength in index biggies.
We expect action in select largecaps to continue. On P&F chart, the Nifty50 confirmed a Triple Top buy, suggesting a higher probability of it breaking through the recent consolidation phase and it is expected to attempt 16,700 on the upside.
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How did the May series end and what is the outlook for June series? Where do you see markets moving in the first week of June series?
In the May series, Nifty fell 6.2 per cent on an expiry-to-expiry (EoE) basis. Metal and Smallcap 100 indices underperformed significantly, losing more than 15% EoE.
BankNifty and Financial services indices relatively outperformed the benchmark index. Rollovers for Nifty/Bank-Nifty stood at 79% (~1.3cr shrs)/86% (~25.5lakh shrs) vs 78% (~1.01cr shrs)/85% (~27lakh shrs) of the previous month.
Market-wide rolls were 92% vs 94% for the prior month. During the month, FIIs’ index future long/short ratio rebounded off its two years’ lowest levels; while Nifty’s OI PCR recorded its multi-year lowest reading at 0.65, post which Nifty entered into a consolidation phase.
In the June series, BankNifty staged a consolidation breakout. Moreover, it managed to fill its downward gap formed on 6th May; we expect BankNifty to continue its outperformance and rally above 37,100 in this expiry.
Sectorally, banks saw major buying action in the week gone by. What is your take on banking stocks, and will the momentum continue in June series as well? Any names which are looking strong?
Though, BankNifty is far off from its April 2022 peak, it managed to defend its upward sloping trendline and 2-year mean, resulting in a pullback in the last two weeks.
We believe that numbers always have an important story to tell. So, we probed into historical trend of BankNifty of last 15 years and its performance in Q2 of the Calendar Year (i.e. April, May & June).
In CYQ2 of last 15 years, only on 2 instances, BankNifty has registered negative quarterly returns (i.e. 2011 & 2008). Average quarterly returns of the leadership index in last 15 years of CYQ2 is ~10%.
In CYQ2, it tends to outperform the benchmark Nifty. Historically, strong moves are seen in BankNifty and its components during this phase.
So, it is likely to play a major role in the coming month.
has shown relative strength over the last two months.
Meanwhile, pullback trade is expected in the range of 7-8% in HDFC Bank & ICICI Bank in the medium term.
Metals took a beating, fell more than 4%. What led to the price action and what should investors do?
Inter-market relationship is in a mess currently, which is taking a toll in the commodities space. The US dollar index has retreated off its peak, yet the structure is bullish, a pullback is seen in commodity currency (i.e. Australian Dollar Futures, yet the overall structure is bearish.
If these situations persist, there appears to be no point in calling a bottom in metals space. The ratio of Nifty Metal vs Nifty is trading below the yearly mean, implying the continuation of metal’s underperformance against the benchmark index.
Cool-off in DXY has led to some respite in metals space, yet it continues to be a vulnerable place, prone to high swings.
Rather than chasing a beaten down space, sticking to a recent outperformer like autos & banks would provide a better trading opportunity.
The Dollar Index hit a 1-month low. Do you think this will give some respite to equity markets?
In the last five years, this was the third attempt by the US Dollar index to break on the upside, it has retreated off the peak in last few sessions, yet a big fall is unlikely.
Would term current move as consolidation rather than a big reversal. In the short-term, inverse correlation has provided relief to equities, especially emerging markets space.
Yet, it is too early to conclude that the bull run is over in the Greenback. Already, a pullback move is in play in multiple global indices & commodities, yet multiple overhead structures on major indices are unlikely to provide a bigger push.
For DXY, RSI divergence was seen at the top, resulting in a recent correction. We could see it re-testing April 2020 peak around the 100 mark in the near term.
Any trading rules which one should follow to manage risk amid volatility in markets?
Whenever in doubt, always look towards the big boys (i.e. index heavyweights). Often, they provide bottoming out or confirmatory structure, which is later observed in the benchmark index.
Midcaps/Broader markets tend to deceive during the period of higher volatility.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)